Hong Kong Exchanges and Clearing (HKEX) and China Foreign Exchange Trade System (CFETS) have teamed up to prepare for the soon-to-be launched bond connect scheme, the bourse said on Wednesday.

They have formed a joint venture, the Bond Connect Company, which will support trading services related to the new debt-trading link. It is 60 per cent owned by CFETS and 40 per cent by HKEX.

The People’s Bank of China and Hong Kong Monetary Authority last month approved the bond connect scheme which will allow cross-border trading of bond products. Initially, it will just open for northbound trading for international investors to buy and sell in the mainland’s interbank debt market via HKEX.

Through initial bond market infrastructure connectivity and cross-border cooperation, we expect to attract a greater number of foreign investors to the mainland bond market

Pei Chuanzhi, president, CFETS

The launch date has not yet been announced, although Premier Li Keqiang said in March that the new scheme would happen this year. The aim is to roll out the southbound route for mainlanders to trade Hong Kong bonds a bit later.

China is the world’s third-largest bond market, worth US$7.5 trillion, after the US at US$35 trillion and Japan at US$11 trillion.

However, foreign investors hold less than 3 per cent of that total as the country has not yet opened up its capital market, according to Standard Chartered.

Commentators say the bond connect scheme will be a major step forward in opening up the mainland’s bond market and strengthening Hong Kong’s role as a gateway for foreign investment into the China.

The joint venture will handle admission and registration for international investors who want to trade mainland bonds.

“Bond connect shows the mainland’s support for the Hong Kong bond market as well as another attempt to open up the China interbank bond market further,” said Pei Chuanzhi, president of CFETS.

“Through initial bond market infrastructure connectivity and cross-border cooperation, we expect to attract a greater number of foreign investors to the mainland bond market. Greater investment convenience will be provided in due course in line with the overall liberalisation plan of the mainland financial market.”

HKEX chief executive Charles Li Xiaojia said the bond connect scheme is an important milestone in cross-border trading schemes, following the launch of the stock connect between Hong Kong and Shanghai in 2014 and the addition of the new link with Shenzhen in December last year.

“With bond connect, we are expanding the mutual market programme from stocks into a new asset class. It will provide an efficient access channel to China’s onshore bond market via Hong Kong, bringing benefits to the mainland, Hong Kong and international investors through more choice, more opportunity and more convenience,” Li said.